I do, nonetheless, believe that society should exert pressure to level the results by a worthwhile welfare state & by progressive taxation. This may not be advised on economic theory but, apart from common decency, a society with great differentials is not cohesive & does not inspire loyalty.

Frannie gave about half of the subsidy thereby generated (by cheaper debt than it would otherwise pay due to Government backing) to shareholders – about 70 billion US dollars. Frannie also dominated the prime mortgage market and failed to fufill its mandate to lend to people who could not otherwise obtain mortgages. (They also donated a lot of money to senators and representatives and various election campaigns and a *lot* on lobbying; and came to dominate the two hundred or so State employees whos jobs it was to regulate them).

Because of this, the other players in the market ended up focusing on those bad credit risks (as well as being required, by law, to lend to them).

Then along came the liberalization of credit, which has caused property booms in a number of countries around the world. US housing prices went through the roof as credit is now so massively available – demand is unleashed by the huge numbers of people now able to afford property (and more expensive property) where they could not before.

However, credit was in fact being lent unsustainably and a great deal of toxic mortgages were coming into being, which were being rolled over by the owners (refinanced) when they couldn't pay, taking advantage of various offers for easy initial terms. This led to a build up of toxic debt and it finally broke in 2006/2007.

The problem now is that the collaterialisation of this debt means no one knows the real quality of who owns what – and this also means no one knows just how much loss there is going to be.

The killer here is not just the losses, but the uncertainly of now knowing how much they are and where they are. This results in paralysis.

There is a common – extermely common – mistaken made when studying failures to determine the cause. People track the chain of events back to the *first* point where a change could have been made to have prevented failure and argue that was the cause.

In fact, the correct solution is to track the failure back to the *first* point where a change could have been made to prevent failure.

The original cause of failure here is US Government interference in the market. This was combined with later further US Government interference in the market. Finally, with the scene set for failure, we see private companies making major errors of judgement in lending.

Liberalization of credit would still have happened with Government interference and so the housing boom and most likely the errors of judgement in lending would have occurred.

However, the existance of Frannie – vast and unstable – and the gross weakening of the position of other lenders by forcing their books into the risky end of the market – this falls directly at the feet of the US Government.

Frannie would not have *existed* to be bailed out, if it were not for the US Government. The other lenders would have much stronger, broader mortgage books – being that much more able to survive what is ocurring.

In the end, it seems to me this is all about ethics.

The US Government behaved unethically in its actions – if I do not wish to lend money to someone, then no third party has a right to come along and force me to do so. This is exactly what the US Government did by requiring lenders to lend to high risk individuals.

Similarly, the US Government acted unethically in the creation of Frannie. If an individual wishes to obtain credit and they cannot, why can someone else come along and use my money to support a company to lend to them? this is exactly what the US Government did in the creation of Frannie.

It seems to me the US Government (and our own, and many others in the West) has lost sight of the fundamental ethical issues involved in consuming other peoples money.

We pay tax to permit the State to perform tasks we individually could not perform – defence, social security, etc.

The State has *no other role*. It has NO business FORCING people by law to behave as IT sees fit. What right does anyone have to interfere in the life of another, except that of self-defence? this applies to the State as throughly and deeply as it does to each and every one of us.

We do not exist and pay tax for the State to interfere as it sees fit in our lives – we pay tax and permit the State to exist so it can perform tasks we cannot individually perform which we collectively feel must be done.

The States we have now in the West – in the US, in the UK, France, Italy, Germany, etc – are monsters. They are so vastly spread beyond their reason for existance they spend most of their time consuming our money to dictate to us about how we live our lives.

Subject: Request for urgent confidential business relationship

Dear American: I need to ask you to support an urgent secret business
relationship with a transfer of funds of great magnitude. I am minister
of the Treasury of the Republic of America. My country has had crisis
that has caused the need for large transfer of funds of US$700bn. If you
would assist me in this transfer, it would be most profitable to you.
This transaction is 100 per cent safe. This is a matter of great
urgency. We need a blank check. We need the funds as quickly as
possible. My family lawyer advised me that I should look for a reliable
and trustworthy person who will act as next of kin so the funds can be
transferred. Please reply with all of your bank account, IRA and college
fund account numbers and those of your children and grandchildren to
wallstreetbailout@treasury.gov so that we may transfer your commission
for this transaction. After I receive that information I will respond
with detailed information about safeguards that will be used to protect
the funds.

Yours faithfully, Minister of Treasury Paulson, Nigeria, Washington DC

Even the Presidents sanitised cheerleading message was absurd.
You the taxpayers pay the Bankers 700 billion (initial, minimum) and in return they will continue to extend credit ie allow you to get further into debt with them.
Just what kind of deal is that.

Doubtless the real bill contains all manner of other horrors as all post 911 legislation does

At the bottom of this page link are links to Parts 1,2 & 3 of "Money Morning Special Investigation of the Credit Crisis".
http://www.moneymorning.com/2008/09/26/creditcris…